Problem 9-28
Variable costing and absorption costing, the All -Fixed Company. (R.Marple, adapted) it is the end of 2013. The All -Fixed Company began operations in January 2012.
The company is so named because it has the varialbe costs. All its costs are fixed; they do not vary with output.
The All-Fixed Company is located on the bank of a river and has its own hydroelectric plant to supply power, light, and heat. The company manufactures a
synthetic fertilzer from air and river water and sells its product at a price that is not expected to change. It has a small staff of employees,
all paid fixed annual salaries. The output of the plant can be increased or decreased by adjusting a few dials on a control panel.
The following budgeted and sctual data are for the operations of the All-Fixed Company. All-Fixed used budgeted production as the denominator
level and writes off any production-volume variance to cost of goods solds.
		2012	2013
Sales		10,000 tons	10,000 tons
production		20,000 tons	0 tons
Selling Price		$30 per ton	$30 per ton
Costs (all fixed):
	Manufacturing	$280,000	$280,000
	Operating (nonmanufactoring)	$40,000	$40,000
1	Prepare income statements with one column for 2012, one column for 2013, and one column for the two years together using
	(a) variable costing and (b) absorption costing.
2	What is the breakeven point under (a) variable costing and (b) absorption costing?
3	What inventory costs would be carried in the balance sheet on December 31, 2012 and 2013, under each method?
4	Assume that the performance of the top manager of the company is evaluated and rewarded largely on the basis
	of reported operationg income. Which costing method would the manager prefer? Why?